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Shorting the market in 2009 |
johnnyboy
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Joined: 10 Feb 2009
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 Posted: Tue Feb 10, 2009 7:33 pm Post subject: Shorting the market in 2009 |
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| I'm just signing on here, hello to all. Someone please enlighten me. I saw an article by another poster discussing the poor dynamics of inverse ETFs due to their complex futures trading and reinvestment strategies. I was very pleased trading TWM last year, however that gig is over, as it would appear is the case with many other ETF "stocks." My question is this. In your opinion, what are the best individual stocks to short in the current market? TIA. |
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Shorting the market in 2009 Replies |
rffrydr
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| Posted: Mon Oct 12, 2009 11:00 pm Post subject: |
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More bullishness brings out more bearishness.
| Quote: | Tim Melvin
Here We Go Again
10/12/2009 1:25 PM EDT
The wildebeests are returning to the water hole. Once again they have forgotten that the lions are waiting there for dinner. Vanguard had to close its hottest fund as investors rushed to throw money at it after it had risen 70% this year. The fund group said it closed the fund on Friday to protect investors from themselves. This cycle plays out in every bull market and ends with investors burned and upset. But then as memory fades they are right back it in the next bull market.
Performance chasing and yield chasing are two of the most bizarre investor behaviors I can imagine. But they happen over and over again as investors return to the watering hole. Like the wildebeest their search for a free lunch usually ends up with them being lunch |
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rffrydr
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| Posted: Tue Sep 01, 2009 3:29 pm Post subject: |
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Just like old times:
Nasty Rumors
| Quote: | By Jim Cramer
RealMoney Columnist
9/1/2009 12:58 PM EDT
Aha, a reason to sell off! Some dastardly rumor of a "bank failure" or a "bank bailout" including emergency meetings in Washington and a panicked FDIC. Now that's an irrefutable rumor that can deck pretty much everything. It's out of the blue and gives us a reason to ring the register, and panic and short!
Throughout the myriad sell calls, there's been nothing but ethereal logic: real estate not really bottoming, the "coming" commercial real estate crash, the "bear market" of China and the president's anti-capitalist agenda. All fine reasons to sell, but not anything to dump and "get out now" for.
Ah, but a bank failure... Something more than just a Corus (CORS - commentary - Trade Now) bank -- how can that be still trading? -- or an ignored judgment of worthlessness about Fannie (FNM - commentary - Trade Now) or Freddie (FRE - commentary - Trade Now) or AIG (AIG - commentary - Trade Now) -- tell me the latter shouldn't have issued 20 million shares when it had the chance! -- now that's a reason to pile on!
Until it is clarified, until we find out a) there is no failure, which means vicious snapback or b) the failure is of the Corus level, which means mild snapback, or c) the failure is of a TARP bank with lots of share, which means a quick drop to below Dow 9000 if not lower, I think that buying anything other than defensives (we are buying Procter (PG - commentary - Trade Now)) makes little to no sense, because the rumor mill is working too well and the lack of players makes the impact and velocity too powerful to ignore and too compelling to sidestep, which, of course, means you should sell. |
| Quote: | RTRS-CIT GROUP SAYS PROVIDED NOTICE OF CONTINUANCE OF TRIGGER PERIOD TO HOLDERS OF SOME NOTES DUE MARCH 15, 2067
11:08 01Sep09 RTRS-CIT GROUP SAYS TRIGGER EVENT OCCURRED REQUIRING IT TO SATISFY SEPT 15, 2009 INTEREST PAYMENT - SEC FILING
11:09 01Sep09 RTRS-CIT GROUP SAYS IS NOT ABLE TO EXECUTE ALTERNATIVE PAYMENT MECHANISM, IS REQUIRED TO MANDATORILY DEFER INTEREST ON NOTES
11:09 01Sep09 RTRS-CIT GROUP SAYS PROVIDED NOTICE OF DEFERRAL FOR SEPTEMBER 15, 2009 INTEREST PAYMENT TO HOLDERS OF NOTES |
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rffrydr
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rffrydr
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goldbug
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Joined: 21 Jun 2009
Posts: 35
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| Posted: Sat Aug 15, 2009 10:21 am Post subject: $8 OIL could feel expensive at that time |
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$8 OIL may feel expensive if deflation hits hard. Remember that all these prices you see around you are because of credit inflation. Almost all of our money is in terms of bank credit. It is impossible to pay the principle + interest on this debt as explained here:
http://www.tradingstocks.net/html/banks_create_money.html
Let's say we had 65 trillion at the top. 15 trillion already gone. If another 30 trillion of debt goes bad or is paid back, that shrinks the money supply more than half. Let's say we over do it and end up with 6.5 trillion at the end. That is 10 times less money supply. At that time, 8$ will feel like the $80 of good old days.
So, deflation is in the books and a short was signaled first week of August:
http://www.tradingstocks.net/html/latest_opinion.html
Deflation page:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html |
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johnnyboy
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Joined: 10 Feb 2009
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| Posted: Tue Feb 17, 2009 10:47 pm Post subject: Bottom Dollars |
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Your bottom dollar may be right, however sentiment can drive prices to extremes not supported by fundamentals. A price movement can't destroy a commodity's supply and demand dynamic, it can only REFLECT what investors feel, whether rational or not.  |
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diesel
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| Posted: Sat Feb 14, 2009 12:27 am Post subject: |
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I would bet my bottom dollar we will never see $8. If we see $8 the whole middle east would collapse and its oil supply would go with it. Be careful what you wish for.....
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johnnyboy
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| Posted: Sat Feb 14, 2009 12:25 am Post subject: |
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Thanks, rffrydr.
Crude? I think a low of $20.5 before end of wnter...a temporary rally back to $35...then a low of $8 before the depression ends (assuming it ever does) |
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rffrydr
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| Posted: Thu Feb 12, 2009 11:10 pm Post subject: |
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Check out selling SP Vol against DOW Vol as the math works in your favor on this upside down trade with most of the DOW calibrated economy under $5.
Need a strong view on crude to execute this however.
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johnnyboy
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| Posted: Thu Feb 12, 2009 7:25 pm Post subject: |
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| Thanks, Diesel, the article does help explain how the mathematics of leverage become problematic. In my mind, though, the inefficiency of a leveraged ETF is not great enough to make long-term price trends compensatory for the risk of short term volatility due to the constant recalibration (however inefficient) back into leveraged condition. Put another way, the advantage of an approach based on longer price trends can easily disappear with a mending ETF as the market itself moves unpredictably. I think I prefer to assess which ETFs, based on price action, appear to have successfully recalibrated to their leveraged condition and combine this with a short term strategy that attempts to eliminate such inefficiencies altogether, or to the extent possible. That's my 2cents, anyway. Thanks again for the article and your input...JB |
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diesel
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| Posted: Wed Feb 11, 2009 12:43 am Post subject: |
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Hi johnyboy,
Heres a good article that goes over these issues.
http://seekingalpha.com/article/35789-the-case-against-leveraged-etfs
| Quote: | Let’s take a moment to see how a leveraged ETF works. In order to deliver the 2x results that the fund’s investors expect, fund management has to hold equal proportions of debt and equity at all times.
In other words, if there’s $100m invested in the fund, it has to borrow an additional $100m and make a $200m investment in the underlying index. That’s the only way that the fund can provide 2x the underlying daily return of the index.
Of course the fund doesn’t go to the local bank and borrow money every day and then invest it. It uses financial derivatives, such as swaps, options, and futures. But the overall effect is the same.
However, every day the market moves and the assets in the fund either increase or decrease in value, throwing off the leverage ratio because total assets are no longer equal to total debt. By the end of the market day, the fund’s leverage is either too high, or too low, and some kind of corrective action is required to bring it back to 2x.
In order to maintain the target leverage ratio, our fund has to buy or sell millions of dollars worth of shares every day. Not only does this increase expenses, transaction costs, and short-term capital gains taxes, but it’s also just a bad investment strategy.
Whenever the market makes a big move downward, the fund sells shares and reduces its debt level in order to maintain its target leverage ratio. This locks in losses and reduces the afund’s sset base, making it much harder to recover gains in the next market upturn.
Note that this situation is called the Constant Leverage Trap and is a well-known problem in financial modeling. Investment portfolios that try to maintain constant levels of leverage over time perform very poorly in bad market conditions because they sell off large percentages of their assets. It’s similar to a margin maintenance call. |
Because of the 200% leverage these ETFs use they tend to under perform over time especially if the market is moving against them. This can be used to your advantage if you want to bet against them i.e. shorting, selling calls etc.
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johnnyboy
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| Posted: Tue Feb 10, 2009 10:21 pm Post subject: Yeah, but... |
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| Diesel, thanks, but if ETF leverage is zapped due to VIX exhaustion and reinvestment inefficiencies, wouldn't that be equally true for ETFs LONG the market? And what do you think about selling a call on one of these? TIA. |
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diesel
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| Posted: Tue Feb 10, 2009 9:06 pm Post subject: |
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I think you answered your own question. Find a 2x ETF you are bearish on and short that. In no particular order I would look at:
China Bear ETFs
Dollar Bull ETFs
Commodity Bear ETFs
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